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Rising ethanol production may impact beef ranches
Ohio Correspondent

BOWLING GREEN, Ohio — The growing business of ethanol production and its impact on the cattle feed market was the main topic Monday during the Great Lakes Professional Cattle Feeding and Marketing Short Course.

“The industry is expanding tremendously right now and probably will for the next two or three – up to five – years,” said Kip Karges, researcher with Dakota Gold Research, a company actively marketing an ethanol byproduct called distiller’s dry grain solids (DDGS).

Karges gave an overview of the ethanol production process. His company is part of Broin and Associates of South Dakota, the second-largest producer of ethanol – and therefore DDGS - in the United States. The only larger producer is Archer Daniels Midland.

He said his company’s plants are mainly in the western part of the Corn Belt, but are quickly moving to the eastern part. They have one plant in Michigan and several in the planning stages.

Jim Hilker, a professor of agricultural economics at Michigan State University, said plans for two ethanol plants in Ohio from other companies have received approval - one in Allen County and the other in Fayette County. Karges said the three main uses for ethanol are for an ethanol-based fuel called E-85 – a mix of 85 percent ethanol and 15 percent gasoline – as well as an octane booster and an oxygenate to replace MTBE, a carcinogen that has been banned in several states.

“Eighty-five percent is about the highest commercial vehicles can handle right now,” he said. However, race cars are starting to burn 100 percent ethanol.

If a station is selling E85, he suggested vehicle owners check their operator’s manuals to find out if they can safety burn E85 because many late-model cars have the ability.

Along with DDGS, Karges said carbon dioxide is a byproduct of ethanol production. If there is a carbonated beverage plant nearby, the product can often be carbonated with it.

From each bushel of corn, he said 2.6 gallons ethanol, 17 pounds of DDGS and 17 pounds of carbon dioxide are made. Karges also noted that technological improvements to the ethanol production are being made, which make the process more economical. Locally, Hilker said the increase in demand for corn is expected to boost the price per bushel 10-12 cents.

“If you’re buying, you’re going to pay a little more for it,” he said. “If you’re selling it, you’ll get a little more for it.”

However, he said a more wide-ranging impact of ethanol plants has been a 200 million bushel per year increase in corn production. The number of plants in the western Corn Belt has been growing steadily since the 1980s.

“That’s good because exports have been basically flat since the 1980s,” he said.

“Annual production has increased about 1.7 million bushels per acre year in and year out,” he added. “It hasn’t faded and I don’t see it happening anytime in the near future. We’re likely to have the third-largest crop ever in 2006.”

The use of corn by the ever-increasing number of ethanol plants is likely to keep production high, Hilker noted, because the number of plants continues to increase. “They’re breaking ground every day,” he said.

The Energy Policy Act of 2005, which was signed into law last summer, requires the nation to be using 7.5 billion gallons of renewable fuels per year by 2012.

“That will be 7 billion gallons for corn and the remainder for biodiesel and other renewable fuels,” Hilker said.

The energy bill is going to require a total of 2.63 billion bushels for ethanol plants – or 625 million bushel more than is being used now. “The fears of running out of corn are unfounded,” he said.

The impact won’t be huge for farmers, but could save the government some money in federal subsidy programs, Hilker said. Producers can expect to pay or receive between 10-12 cents more per bushel of corn, or an average of $2.40 per bushel.

“It could save the government about $1 million a year in LDP (loan deficiency) payments without hurting the farmer,” he said.

While the change in corn prices is not expected to be huge, Hilker said the main impact on cattle production is DDGS, which can be fed to cattle in place of corn and other feed.

“It’s a very nutrient-dense, protein-rich product,” Karges said. The price averages between $70 and $90 per ton.

“Livestock producers might win or lose, depending on individual circumstances,” Hilker said. “It’s a dynamic market.”

It will be the producers’ task to calculate how much they can pay for DDGS to remain profitable or maximize profits.

Some of the factors to consider are transportation costs for the feed, knowledge of the nutrient content of DDGS from each individual ethanol plant, and the effect on the environment of more nutrient-dense manure.

Producers can check with the Ohio State University Extension Agricultural Business Enhancement Center, Bowling Green, for spreadsheets designed to assist with this task. Currently, Karges said his company’s main market for DDGS (54 percent) is to California dairy farms, but the product is being marketed to swine and poultry operations.

“That’s where we see our growth as a company,” he said. They also are looking into exporting DDGS to countries such as Malaysia, Japan and China.

New research suggests DDGS can be a larger percentage of the livestock diet than was previously used. Producers were feeding about 10 percent or less, but the amounts are increasing to 20 percent. “There’s a lot of room for growth,” he said.

This farm news was published in the February 8, 2006 issue of Farm World.